Corporate governance in Japan: Past performance and future prospects

Much has been written about the Japanese 'model' of corporate governance. I ndeed, Japanese-style corporate governance has been described as an efficie nt alternative to corporate governance mechanisms available in the West, an d as a model for developing economies. As opposed to American-style corpora te governance, in which hostile takeovers and managerial incentive schemes play a major role: Japanese firms have traditionally relied on monitoring b y large shareholders and banks. This article describes the evolution of cor porate governance in Japan since the Second World War and surveys the empir ical evidence on its performance. Although there is substantial evidence on the effectiveness of the Japanese system, there is also evidence on its si gnificant shortcomings. The article also evaluates the effects of the curre nt macroeconomic and banking crises on corporate governance in Japan, and s uggests possible directions for future changes, which are likely to make Ja pan more similar to the USA in this respect.